Starting your own business can give you a chance to pursue your passion with the flexibility to set your own deadlines, create your own schedule, and build your own team. This flexibility gives entrepreneurs the ability to decide who to hire and bring into their company. Frequently, companies run background checks, also known as consumer reports, to determine if a candidate is fit to work at their company. These background checks can include information from a variety of sources, including credit reports and criminal records. Access to such confidential information comes with great responsibility and restrictions.
Specifically, when running background checks through third party companies, employers must comply with the Fair Credit Reporting Act (FCRA). The Federal Trade Commission (FTC) enforces the FCRA, which ensures the accuracy, fairness, and privacy of the information in consumer credit bureau files, and regulates the way credit reporting agencies can collect, access, use, and share the data they collect in consumer reports. The following list should serve as a guide for business entities to comply with the FCRA when starting up or shortly after starting the company. Steps 1-3 should be taken before you get a consumer report. Steps 4 and 5 should be taken before and after you make the decision to take adverse action.
STEP 1: NOTIFY THE APPLICANT
Do you plan on conducting a background check for applicants? If so, you must disclose to the applicant that you might use information in their consumer report for decisions related to their employment. To be more specific, you must:
1. Provide the applicant with notice in writing. Notice must be provided in a separate document with a brief description of the nature of consumer reports.
Make sure the notice is clear and does not confuse or distract the consumer from the notice.
2. Obtain the applicant’s written permission.
Written permission can be provided as part of the document you use to notify the person that you will get a consumer report.
STEP 2: CERTIFY COMPLIANCE TO THE CONSUMER REPORTING AGENCY
In order to certify with a consumer reporting agency, you must certify the following:
1. That you notified the applicant and got their permission to get a consumer report
2. That you complied with all of the FCRA requirements; and
3. That you will not discriminate against the applicant or otherwise misuse the information, as provided by any applicable federal or state equal opportunity laws or regulations.
STEP 3: CHECK YOUR STATE LAWS
If you intend on conducting background checks when hiring employees, it is important to make sure to also check the laws within your state. Depending on where your business is located, that state may offer additional protection to the consumer. Several state laws overlap with the Fair Credit Reporting Act; however, states may have additional requirements for conducting background checks.
For example, states such as Alabama, Alaska, Arkansas, Florida, Idaho, Iowa, Mississippi, North Carolina, South Carolina, South Dakota, Texas, West Virginia, and Wyoming have no laws or regulations on background checks and employment. On the contrary, the remaining 37 states, and the District of Columbia, have additional rules and regulations in place for credit checks.
Some states prohibit employers from considering an applicant’s criminal history unless there is a direct relationship between the applicant’s previous criminal offenses and the specific employment position. While others prohibit employers from inquiring about an applicant’s criminal history until after the initial employment application.
It is important to make sure to comply with all state, local, and federal laws.
STEP 4: PROVIDE THE APPLICANT WITH DOCUMENTS YOU RECEIVED
Before you make the decision to reject an applicant or take any other adverse employment action based on information in a consumer report, you must give the applicant a notice that includes a copy of the consumer report you relied on to make your decision and a copy of A Summary of Your Rights Under the Fair Credit Reporting Act. The copy of the copy of A Summary of Your Rights Under the Fair Credit Reporting Act should be provided by the company that gave you the report.
STEP 5: PROVIDE THE APPLICANT WITH NOTICE OF ADVERSE ACTION
Finally, once you take adverse action based on information in a consumer report, you must give the applicant or employee notice of that fact. Notice can be provided orally, in writing, or electronically. This notice will give the applicant the opportunity to review the information in the report and tell you if it is correct. The notice must include:
the name, address, and phone number of the consumer reporting company that supplied the report;
a statement that the company that supplied the report did not make the decision to take the unfavorable action and can't give specific reasons for it; and
a notice of the person's right to dispute the accuracy or completeness of any information the consumer reporting company furnished, and to get an additional free report from the company if the person asks for it within 60 days.
CONCLUSION
The FTC has created the Fair Credit Reporting Act (FCRA) to ensure that consumers’ sensitive information is being protected. The Fair Credit Reporting Act requires you to take important compliance steps. As a business owner, it is important for you to follow these steps and incorporate them into your hiring practice if you intend on conducting a background check.
First, you must notify and receive consent to obtain a consumer report. Next, you must provide certification to the consumer reporting agency. Lastly, any decision made upon the results of a consumer background report that adversely affects the applicant must provide the applicant with notice and a copy of their report. The applicant has a legal right to review and correct any mistakes that may be on their credit report.
Be sure to always comply with all state, local, and federal laws.
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